Monday, 28 November 2016

(The Source) – Zimbabwe introduced its new currency on
Monday to mixed market reaction — broad acceptance by major retailers, informal
traders and public transport operators — but without the crucial buy-in of fuel
retailers.

The country dumped its inflation-ravaged currency — the
Zimbabwe dollar — in 2009 after printing a $100 trillion note that could not
buy a loaf of bread and adopted the use of multiple currencies, chiefly the US
dollar and major trading partner South Africa’s rand.

President Robert Mugabe’s government says the new currency,
which he has described as a surrogate of the US dollar, is designed to curb the
smuggling of physical greenback from the informally dollarised economy and boost
flagging exports — both major factors cited for a biting shortage of US dollar
bills that has seen long lines at the banks since the turn of the year.

The surrogate currency, dubbed ‘bond notes’ as they are
backed by a $200 million Afreximbank bond facility, has been pegged at par with
the greenback and will circulate alongside the US dollar, rand and other
currencies in Zimbabwe’s official multi-currency basket.

The introduction of the bond notes has stoked fears of a
return of hyperinflation, which peaked at 500 billion percent in December 2008
according to the IMF, as well as pervasive shortages of basic goods and
foodstuffs.

On Monday, months after announcing it would introduce a
local currency, Zimbabwe’s central bank finally injected $12 million worth of
bond notes — in $2 and $5 bills — into the economy, in a bid to end the
debilitating bank note shortage.

A $1 bond coin was also introduced, to join coins valued
from 1 cent to 50 cents introduced in December 2014 to resolve the problem of
small change under a different $50 million Afreximbank facility.

BOLLARS

Banks started issuing the notes to depositors early on
Monday, with many offering a combination of both US dollar bills and bond
notes, a mix which typically sardonic Zimbabweans branded ‘bollars’ in messages
shared on various social media platforms.

Despite fears that the currency would be rejected by the
transacting public, major retail outlets and informal traders who dominate
Zimbabwe’s economy, were seen accepting the bond notes.

The currency did have a less than assured start on Monday,
with some retail outlets claiming they could not accept it as they did not know
the new notes’ security features.

Zimbabwe’s burgeoning informal sector, which some analysts
believe to be bigger than the formal economy, is likely to have the final say
on the government’s currency gamble.

By mid-afternoon, airtime vendors and informal traders–
selling products ranging from fruit to umbrellas in wet Harare and Mutare —
were accepting the new notes, as were public transport operators.

“We accept bond notes, that is the money we have now so we
have no choice but to accept it. Otherwise we will lose customers,” said an
airtime vendor on Harare’s First Street.

Amid the din at the teeming Fourth Street bus terminus,
vendors could be heard battling to outshout each other: “We take even bond
notes!”

A similar scene was observed at Mutare’s Sakubva market.

“We have no choice, money is money,” says a man who only
identifies himself as ‘fireman’ — the name given to scores of young men who
shout themselves hoarse in a bid to draw the attention of potential buyers.

In Victoria Falls, our correspondent reported that some
customers were refusing change in bond notes.

Indeed, one of the fears among the transacting public is
that the bond note may not hold its peg for long, with an increasingly rare US
dollar once again opening up thriving black market trade for the scarce
greenbacks.

Our Bulawayo correspondent reports that the city’s infamous
‘World Bank’ was already discounting the bond note by as much as 20 percent.

“Ospatheleni (money changers) are offering 80 US cents to
one bond note, while fuel retailers also have different prices for the bond
notes and US dollars,” the Source witness said.

However, in Harare, several street currency traders
interviewed by The Source did not report any trade yet.

“We have no (exchange) rate, but I’m sure it cannot be
1:1,” one trader, who operates from the Eastgate mall in downtown Harare, said.

FUEL GRIDLOCK

Analysts and critics of the bond notes believe the currency
could buckle under pressure from demand for increasingly short US dollars in
Zimbabwe’s import-dominated economy. As such, how the central bank manages its
US dollar priority allocation mechanism for vital, import-dependent industries
such as the fuel sector, is going to be key in determining whether the bond
note holds its value.

Even before the introduction of bond notes, there were
rumblings within the fuel retail industry over delays in processing payments
for petroleum imports due to the central bank’s restrictions, resulting in
frequent stock-outs.

Although the government has moved to allay fears of
extended shortages, several fuel retailers in the capital ran out of supplies
over the weekend, a situation which spilled over into the new week.

On Monday, fuel retailers surveyed in Harare were holding
off accepting bond notes, with many of them citing lack of familiarity with the
new currency’s features.

The Source’s Victoria Falls correspondent reports that
banks received the new currency late in the day on Monday, with major retail
chains accepting the bond notes after initial resistance. However, some
shoppers were witnessed rejecting the new notes as change.

ECHO CHAMBER?

Zimbabwe’s vibrant social media platforms, which provide a
channel of dissent in what remains a restricted traditional media space, and
are dominated by anti-bond note sentiment, panned the introduction of the new
currency.